In this next post I wanted to make sure that the 1031 exchange is fully explained. Previously we’ve gone over a few of the details associated with this sort of real estate transaction, but it’s important to take a look at a few of the truly important details associated with a starker or like kind exchange.
While we know at this point that the properties that are allowed to participate in this sort of tax-deferred maneuver must be either commercial property or investment property that the owner does not personally live in. The next thing that we want to take a look at our the time frames associated with this process to make sure that everyone is well aware of the speed that this transaction must be completed in.
The first important rule when it comes to a time frame for a like kind exchange is called the identification period, which is 45 days from the sale of your previous property. It is important to understand that this 45 day rule begins at the earliest of the following two scenarios: the date the transaction is recorded in the deed of records or the date that the session is fully transferred to your buyer. In this time frame, the seller is required to identify at least one property for which the deferred capital gains will be invested in. Fortunately, this property does not have to be the one that you eventually purchase, so it is often recommended to find two or three properties to identify as the potential purchase to make sure that this rule is followed.
The next major timeframe to keep in mind is 180 days because that is the maximum amount of time allowed for your exchange to take place. While six months may seem like a lot of time, you want to make sure that you are keeping on track and getting everything done as early as possible because when it comes to commercial or investment property there may be issues that crop up that delay the final transfer of the new property into your name. No matter what happens there is absolutely no extension allow on 180 days, so if you allow the transaction date to get close to six months and a lone issue comes up or some other minor provision in the contract that delays were closing for a week or two you may extend beyond that 180 days and then be subject to having to pay the capital gains taxes on your previous property that you were trying to avoid.
Now that you’ve had the important time frames of the 1031 exchange explained, you fully understand how important it is to be working ahead of the clock.
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Exchange and family members-If we sell our little office which we rent out and buy my daughter’s condo and rent that out, is that allowed under the exchange rules?